“With the economy and with Europe, there are more
questions than answers in investors’ minds, and they want some
clarity before they put their money down,” said Matt McCormick,
who helps oversee $6.2 billion at Cincinnati-based Bahl & Gaynor
Inc. “After what happened with Facebook, people want IPOs to go
off without a hitch.”

Facebook flopped after pricing its IPO at more than 100
times earnings and kicked off a monthlong drought in the U.S.
Global IPOs that followed, including Felda Global Ventures
Holdings Bhd, a Malaysian palm-oil plantation operator, and EQT
Midstream Partners LP, offered discounts to investors.

Companies including Evonik Industries AG, LaShou Group Inc.
and Tria Beauty Inc. scrapped their IPOs rather than brave a
resurgence in stock-market volatility. The swings damped
investors’ risk appetite, making it harder for companies to get
the prices they want.

S&P’s Swings

The Standard & Poor’s 500 Index, the benchmark gauge for
American equities, rose or fell an average of 1 percent a day in
June, about twice the rate of the previous five months,
according to data compiled by Bloomberg. Price swings are
approaching levels from last year, when the S&P 500’s daily move
of 1.3 percent between April and December was twice the five-decade average.

“What you’ll get now is high-quality companies with
valuations that are reasonable given the lack of appetite and
the volatility in the market,” Joe Castle, New York-based head
of equities syndicate at Barclays Plc, said at a briefing this
month. “The market usually rebuilds from there.”

Felda jumped more than 16 percent in its first two days of
trading after pricing its shares below the top of the proposed
range. EQT Midstream, an operator of natural-gas pipelines in
the northeastern U.S.’s Marcellus Shale region, has risen 15
percent after offering a higher dividend yield than peers in its
IPO.

Coty Inc., the perfume maker that recently withdrew a
takeover offer for Avon Products Inc., today filed to raise as
much as $700 million in an IPO in New York.

U.S. IPOs

U.S. IPOs rose 67 percent this quarter to $22.7 billion,
buoyed mainly by Facebook’s $16 billion sale and Carlyle Group
LP’s May 2 IPO. ServiceNow Inc., the maker of cloud-based
business software, raised $210 million in its IPO yesterday,
pricing the shares above the proposed range. The shares gained
37 percent in the first day of trading in New York today.

Carlyle has advanced less than 2 percent since its debut.
PetroLogistics LP, operator of the world’s biggest propylene
plant, has dropped 37 percent since its May 3 offering.

The MSCI World Index, the benchmark gauge of equities in 24
developed markets, sank 5.8 percent this quarter, dragged down
partly by Europe’s sovereign-debt woes. Cyprus became the fifth
euro-region country to seek a bailout this week, increasing
concern the crisis will spread and imperil the area’s stability.
Western Europe IPOs raised only $896 million, 95 percent less
than in the year-earlier period.

Macro Situation

“For European IPOs, the overriding concern remains the
region’s macro situation,” said Darrell Uden, UBS AG’s London-based co-head of equity capital markets for Europe, the Middle
East and Africa. “For these deals to go ahead, volatility also
needs to come down to an acceptable level, which we haven’t yet
seen.”

Some companies scaled back deals to match shrinking demand.
Inner Mongolia Yitai Coal Co., the biggest coal producer in the
Chinese region bordering Mongolia, is seeking as much as $1.1
billion in a Hong Kong additional stock offering after first
planning to raise as much as $1.5 billion, a term sheet showed
this week. Xiao Nan Guo Restaurants Holdings Ltd., the Chinese
restaurant chain that shelved its IPO in Hong Kong last year,
revived the sale with a lower price range and seeks about HK$512
million ($66 million).

Morgan Stanley’s Dominance

Given the lack of demand, Joe Reece, global head of equity
capital markets at Credit Suisse Group AG, said he’s advising
most IPO clients to expect good conditions for a sale early next
year.

“Overall appetite for risk is compressing right now,”
Reece said. “A lot of things have to go right for this year to
finish strong.”

Morgan Stanley is on track to lead global IPO underwriting
by market share for the third year in a row, partly thanks to
the Facebook offering, according to data compiled by Bloomberg.
The New York-based bank nabbed the top spot in 2011 after
working on that year’s biggest IPO, the $10 billion London and
Hong Kong offering by Glencore International Plc. In 2010,
Morgan Stanley helped complete the $22.1 billion IPO by
Agricultural Bank of China Ltd. in Shanghai and Hong Kong,
history’s biggest initial share sale.

Asia, which accounted for almost half of global IPO funds
raised in 2011, had its slowest second quarter for IPOs since
2009, generating $12.9 billion for companies, as a projected
slowdown in China’s economic growth has weighed on stock markets
in the region. The most populous nation, whose economy expanded
10.4 percent in 2010, is forecast by economists to grow 8.2
percent this year.

Felda’s Sale

Manchester United Ltd., the English soccer club, scrapped
plans to list in Singapore and is exploring a sale in the U.S.,
people familiar with the plans said this month, while auto-racing series Formula One also shelved a listing plan in
Singapore until later this year because of volatility, Chief
Executive Officer Bernie Ecclestone said last month.

One exception was Felda, which raised $3.3 billion in its
Malaysian IPO, the largest initial sale since Facebook’s. That
indicates Southeast Asia’s capital markets may pick up the slack
for a slowing China, said Ronald Wan, a Hong Kong-based managing
director at China Merchants Securities, which oversees about
$1.5 billion.

“The shift of investors’ attention to Southeast Asia may
continue at least through the end of the year,” Wan said.
“Southeast Asia offers a good alternative to global
investors.”

As long as Europe’s debt crisis goes unresolved and the
U.S. economic recovery remains uncertain, stocks will struggle
and IPOs will encounter slack demand, said Jack Ablin, chief
investment officer of BMO Harris Private Bank in Chicago.

“Recent experience hasn’t been great for individual
investors,” said Ablin, who helps oversee about $60 billion of
assets. “There appears to be a distrust of equity markets in
general, and the problem is that IPOs as a segment require an
additional level of optimism and faith, both of which are
lacking right now.”